One of my parents wants to purchase a house and they have the deposit but are only on the state pension so cannot get a mortgage. If myself and my wife purchased the property for him he gave me the deposit and paid all the bills. Would there be a tax liability due?
House for a parent
- Thread starter irishguy
- Start date
Brendan Burgess
Founder
- Messages
- 52,045
Is he buying the house to live in? How would he propose to repay the mortgage?
Or is it an investment?
Are you buying for cash?
Would you need a mortgage?
Please give the numbers for what you propose to do.
Value of house
Deposit
How you will pay the balance
Brendan
Or is it an investment?
Are you buying for cash?
Would you need a mortgage?
Please give the numbers for what you propose to do.
Value of house
Deposit
How you will pay the balance
Brendan
He would be buying to live in himself. He would require a mortgage (which only myself+wife can get) and would be able to pay the mortgage + management fee/insurance etc himself
House value €55,000
Deposit 30% €16500 (classed as investment mortgage by the bank).
House value €55,000
Deposit 30% €16500 (classed as investment mortgage by the bank).
Brendan Burgess
Founder
- Messages
- 52,045
OK, so you and your wife will buy the house with a mortgage of €40,000
He will "lend" you the deposit of €16,500.
You would make repayments of €300 a month over 15 years.
He would give you the €300 per month I presume.
He can lend or gift you the €16,500 - it won't matter as it's so far below the CAT limit.
You would be subject to income tax on the rental income of €300 per month.
You would be able to write off 80% of the interest element €166 per month, so you would pay tax on €140 a month.
You will end up owning the house. When you eventually sell it, you would be subject to CGT on any increase in value.
I wonder would it be ok for him to gift you €300 a month to pay the repayments? That way it would not be classified as rent and taxable? I suspect that Revenue might be ok with this in that they would look at the substance of the transaction.
Alternatively
Would the lender allow you and your father to buy the house jointly? That would be much easier for Revenue to understand.
It's a terrible pity that they would not give him a mortgage with you as guarantor. But so many guarantors in the past tried to escape their guarantees that lenders won't do them anymore.
Have you asked Pepper? They seem more flexible.
Brendan
He will "lend" you the deposit of €16,500.
You would make repayments of €300 a month over 15 years.
He would give you the €300 per month I presume.
He can lend or gift you the €16,500 - it won't matter as it's so far below the CAT limit.
You would be subject to income tax on the rental income of €300 per month.
You would be able to write off 80% of the interest element €166 per month, so you would pay tax on €140 a month.
You will end up owning the house. When you eventually sell it, you would be subject to CGT on any increase in value.
I wonder would it be ok for him to gift you €300 a month to pay the repayments? That way it would not be classified as rent and taxable? I suspect that Revenue might be ok with this in that they would look at the substance of the transaction.
Alternatively
Would the lender allow you and your father to buy the house jointly? That would be much easier for Revenue to understand.
It's a terrible pity that they would not give him a mortgage with you as guarantor. But so many guarantors in the past tried to escape their guarantees that lenders won't do them anymore.
Have you asked Pepper? They seem more flexible.
Brendan
Thanks for the detailed response. Im not sure if i would be allowed to get the rent as a gift, Not sure what constitutes a gift in the revenues eyes?. ill ring them and see if they can shed some light on it.
Ill also make a call to pepper.
For me the easiest way to do this is for your father to gift you the €16,500 and for you and your wife to purchase the home with a mortgage. This assumes that;
A- you have not yet reached the Group A CAT threshold (currently at €310,000)
B- you can pay the mortgage on the balance without putting yourself under any pressure.
Do not charge your father rent as this will only give rise to an admin headache- PRTD registration, Rental Income declaration. If your father is in a position to gift you and your wife X amount of money fir Christmas at the end of the year that would be great. If X is below €6,000 p/a then there will be no tax implications.
A- you have not yet reached the Group A CAT threshold (currently at €310,000)
B- you can pay the mortgage on the balance without putting yourself under any pressure.
Do not charge your father rent as this will only give rise to an admin headache- PRTD registration, Rental Income declaration. If your father is in a position to gift you and your wife X amount of money fir Christmas at the end of the year that would be great. If X is below €6,000 p/a then there will be no tax implications.
Don't forget to consider the impact that effectively taking out a mortgage for your father will have on your future borrowing capacity. If you are already in a house and have no intention of moving then this is irrelevant. However if you foresee you taking out a mortgage in the future then this could represent a considerable burden and greatly reduce your capacity to borrow. Also bear in mind that interest rates are at historically low rates so an increase in interest rates will see this €300 per month greatly increase.